Construction businesses fail for a variety of reasons, but contractors who implement the systems critical for success as early as possible stand the best chance of survival. As the business grows, the processes enacted in that initial phase provide the necessary support and enable contractors to focus more on quality and service.
Smaller remodeling contractors (under $250,000), in fact, suffered a failure rate of 18.6 percent in 2003-04 and 24.3 percent in 2009-10, while the largest remodelers (at least $1 million) ceased their operations at rates of just 2.7 percent and 2.8 percent, respectively. How do contractors execute the proper blueprint for building a profitable and enduring business?
Arrange suitable capital
Before applying for a construction license, people should accrue valuable experience in the field and hone their craft to the level of a professional contractor. But they also must secure the appropriate amount of funding in the beginning so their business can function without taking cash upfront from customers.
“If you’re underfunded, you can’t run your business, and it affects everyone,” says Louis Krokover, president of Newday Development in Sherman Oaks, California. “You can’t make payroll, you can’t cover all of your suppliers and subs [and] you can’t fund the projects [while] waiting to get paid by clients.”
The ability to manage a company's finances assures the business will remain operational and mitigates the fallout from customers who do not pay on time. It also protects a contractor against the possibility of another housing bubble burst. “They have to have enough money set aside to ride out the storm,” Krokover says.
Concentrate ads online
Business advertisements in traditional mediums such as TV, radio and print publications produce limited (and expensive) results for contractors. The Internet offers a free domain for construction companies to pursue higher-quality leads through increased engagement, better visibility and heightened control.
Anthony J. Zolla, president of Ajay General Contracting Co., Inc. in New Hyde Park, New York, says he spends an hour or two each morning answering questions that prospective clients submit through the company’s website. After receiving his response, consumers typically send their contact information along with a request for an estimate, he adds.
Other platforms such as Houzz afford contractors an online community in which they can encourage job reviews and promote their recent work. “Facebook is a great one because it’s free and I can share my project’s progression with people,” says Timothy Dilworth, president of Dilworth Building Co., based in Radnor, Pennsylvania.
Develop thorough plans
The level of consideration given to each proposal or report—no matter how insignificant the document might seem—conveys a sense of professionalism as well as craftsmanship to potential clients and can differentiate one contractor from another. “Give them lots of detail so they can see the other guy hasn’t put the time into it,” Dilworth says.
A reliance on verified plans and not just sketches or drawings will ultimately keep jobs on track and make sure a contractor earns enough to turn a profit. Comprehensive plans also provide subcontractors and trades with an exhaustive schedule that enables them to budget for other jobs, which should persuade them to come back for additional work.
“The more information you can get onto a set of plans, the tighter your numbers will be, the tighter your timeline will be and your clients will benefit in the end,” Krokover says.
Discover new labor
During the housing downturn, many subcontractors and trades left the industry because their job opportunities became increasingly scarce. Though the market has shown signs of a modest recovery, the majority of those people who exited the profession when the economy floundered have no plans to return anytime soon.
“When the industry took a nosedive starting in 2009 and into 2010, 2011 and 2012, a lot of people got out of the trades,” Krokover says. “Now that it’s picking up again, we’re having a hard time finding a qualified labor force.”
“You have to reinvent yourself with new subcontractors,” says Dilworth, who has tried scoping out other jobsites as well as local home improvement stores in search of reliable workers. “If I’m there and I observe somebody who’s in the trade with a clean truck, nice tools and good appearance, I’ll actually strike up a conversation.”
React to customers
Consumers proceed cautiously when investing money in their house and approach home improvement jobs with more knowledge today because of the Internet and TV programs. Contractors who offer superior customer service by answering all of their questions and personally visiting their home distinguish themselves from the competition.
“We’ve tried to structure ourselves so whether we’re catching consumers in the research phase or we’re catching them when they’re ready to buy, we have the kind of information they’re looking for,” says Ralph Stow, chairman and CEO of Dallas Renovation Group in Plano, Texas.
An honest assessment of their house and a willingness to perform the tasks required to update the property correctly can endear a contractor. “I want to respect their money; I want their money to go further,” Dilworth says. “I don’t want them to spend money on this glorious thing when—over here—the foundation is broken, and it needs to be fixed.”
Manage the budget
Armed with information from various sources, homeowners usually come to a contractor with a list of items they would like to incorporate in their job. Sometimes they even have a set of drawings already made and an inkling of what it might cost, so the challenge lies in scaling down their proposal and reevaluating certain aspects.
“Everybody wants to do more than what their budget will allow,” says Ronald Cowgill, owner of D/R Services Unlimited in Glenview, Illinois. “We’re constantly downsizing projects from our first initial meeting, so it takes a little more time to get the job in the door and turn it over to the guys.”
Zolla says he presents clients with a detailed basic package in his showroom and then gives them an option sheet, so they can select the features they desire while also seeing how much each one costs. “We want the clients to spend their own money,” he says. “They’re really deciding where their money is being spent and where they could use it more.”
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